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Feds Say Teece Must Pay $12 Mil for Tax Dodges

By Richard Brenneman
Tuesday January 29, 2008

David J. Teece, the UC Berkeley professor and until recently perhaps Berkeley’s richest private landlord, used illegal tax dodges and owes Uncle Sam millions, says the IRS. 

And the agency is taking him to tax court—again. 

But this time, he raised eyebrows at Forbes Magazine, prompting writer Janet Novack to remark, “An adverse outcome in the cases could hurt Teece’s credibility as a highly paid witness and provide fodder for hostile cross-examiners.” 

The feds want $12 million in back taxes and penalties, alleging the internationally famous business maven claimed $21 million in bogus short-term capital losses in 1998 and 1999, according to the Forbes account. 

In addition to holding the Thomas W. Tusher Chair in Global Business at the university’s Haas School of Business, Teece is founder, director and vice chair of LECG Corporation (the initials stand for Law and Economics Consulting Group.) 

The firm provides expert witnesses, and Teece’s expert submissions have been cited in decisions issued by the U.S. Supreme Court. 

The New Zealand-born economist also served as a member of the Atlas Group’s board of directors and as a trustee of Atlas Insurance Trust. 

Atlas was the brokerage arm of Golden West Financial, which owned the Atlas Funds and World Savings. Both have since been acquired by Wachovia Corporation, ending Teece’s tenure. 

Among his New Zealand-based investments, Teece holds major interests in investment funds and is the founder of Canterbury International, Australasia’s leading purveyor of rugby uniforms. He is named in a separate IRS tax case against Canterbury Holdings LLC, its American subsidiary. 

But to Berkeley residents not affiliated with the university, he has left his biggest mark on the city as partner with Patrick Kennedy in the Gaia Building and other downtown apartment buildings recently sold to a company controlled by an even richer landlord, Sam Zell’s Equity Residential. 

Just how much of the $140 million-plus sales price Teece will reap remains an open question. 

On Nov. 27, he signed a seven-year retention agreement with LECG guaranteeing him payments of $10 million divided between the last quarter of 2007 and the first quarter of the new year. The pact also allowed him to sell some of his previously restricted stock in the company. 

According to records filed with the Securities and Exchange Commission, between Jan. 14 and Jan. 24, Teece sold 470,500 LECG shares for a total of $6,643,800. 

While Teece has yet to return a call from this paper, he granted an interview to the Wall Street Journal last March in which he acknowledged that 60 LECG consultants were making more than $500,000 a year each. 

The experts, who include people with powerful political connections in both parties, are consulted by leading companies around the globe. 

In 2006, according to LECG Corporation’s latest annual report, Teece earned $3,519,258 in fees in addition to his other earnings from the company.  

An examination of tax court filings in San Francisco shows that Teece and spouse Leigh G. Teece were named in an action filed last Aug. 15 and served two days later. 

The couple was also named in an IRS tax claim filed Sept. 14, 2004 and dismissed four months later because the allegations it raised had been covered in a still earlier action. 

Canterbury Holdings LLC. was named in three actions filed in 2004 and a fourth case filed July 21, 2006. 

According to Forbes, the most recent case against the Teeces alleges that Teece used partnership, options and stock in Germany’s Deutsche Bank to manufacture tax losses and shield his other income from federal taxes. 

A 2007 estimate printed in New Zealand—where he still owns a home and visits frequently—estimated his net worth at $94 million. 

Asked about the federal tax claims, David Roth, Teece’s Beverly Hills tax lawyer, said, “We have no comment.” 

The company’s stock, which trades on the NASDAQ exchange, was selling for as much as $17.87 on Nov. 9 but closed at $12.43 Monday. 

Dona Spring, the Berkeley City Councilmember whose district houses most of the buildings created by the Teece-Kennedy partnership, said that if the allegations are true “he needs to pay it back.” 

“That could help pay for some of the deteriorating streets, storm drains and schools,” she said, adding, “I wonder if, if it’s true, whether the local politicians who made money from his fund raisers will return it?” Recipients of Teece contributions include President George W. Bush, state Senator Don Perata, former Berkeley Mayor Shirley Dean and Berkeley Councilmember Gordon Wozniak.